China's consumer and producer prices are likely to return to positive year-on-year growth in the fourth quarter, prompting Beijing to consider an exit plan for its loose monetary policy, a government researcher said.

Ba Shusong, a deputy director in the Development Research Centre, a think-tank under the State Council, or cabinet, said the conditions for China to implement an exit strategy should be ripe in the first half of next year.

By that time, Chinese exports would be reviving as the United States, the country's main market, recovered from recession, Ba was quoted by the official China Securities Journal as saying.

Ba said he was concerned about the potential for rising financial risks and external payments imbalances as well as looming inflation pressures.

Consumer prices fell 1.7 percent in the year to June, while producer prices were down 7.8 percent. July figures will be released on Tuesday, a day later than scheduled.

The People's Bank of China, the central bank, has said it expects consumer prices to bottom out at the end of the third quarter before rebounding.

Ba said China's annual gross domestic product growth was likely to exceed 10 percent in the first quarter of 2010, given the strong momentum seen in the first two quarters of this year.

Year-on-year GDP growth would then slow in what he described as a short-term adjustment. - Reuters